Stocks ended a volatile week lower, with investors rotating further away from growth and technology stocks that had outperformed early on during the pandemic.
The Nasdaq plummeted nearly 3%, clocking in its worst week since March 2020, while the S&P 500 and Dow accelerated losses. A day earlier, the Nasdaq Composite dropped more than 1%, adding to losses after sinking into a correction earlier this week. The Nasdaq has shed 12% for the year-to-date.
Shares of Netflix (NFLX) sank more than 20% after the company posted a first-quarter subscriber growth outlook that fell far short of expectations, with the streaming giant projecting 2.5 million new users for the first quarter of 2022 versus the 6.3 million anticipated, according to Bloomberg data. Shares of Disney (DIS) and Roku (ROKU) fell in sympathy. Meanwhile, Peloton (PTON) — which had been another darling of the so-called "stay-at-home" trade during the pandemic — recovered some losses after falling to a near two-year low on Thursday, after CNBC reported the company was cutting production of its fitness products due to flagging demand.
"It is these infamous stay-at-home plays ... that had been bid up to valuations that get to the point where they're priced for perfection," Mark Luschini, chief investment strategist at Janney Montgomery Scott, told Yahoo Finance Live on Thursday. "Anything that is released about the companies' investment results or prospects that doesn't meet or exceed very elevated expectations leads to gigantic disappointment in the form of a share price decline."
"This is indicative of companies that, again, have valuations that have been bid up by investors who, on disappointment, decide to sell first and ask questions later, and therefore leave huge carnage in their wake as valuations compress to better reflect prospects under a more normal economic climate," Luschini added.
The drop in many closely watched, highly valued technology stocks — and the broader stock indexes — also came alongside ongoing investors jitters about a potential near-term move on interest rates from the Federal Reserve. The Fed's next policy-setting meeting is set to take place next week, with market participants largely pricing in a first interest-rate hike out from the central bank after the Fed's March meeting. These expectations for higher rates and less liquidity from the Fed this year have also been a key driver of recent equity price action, many strategists noted.
"I think there is a rotation going on towards those areas of the market that have been neglected for a long time — not just months, but years. Areas like financials and energy. Even health care, which is an area that had done a bit better during the pandemic, but really isn't seeing any kind of multiples like it did in the past," Jeffrey Kleintop, Charles Schwab chief global investment strategist, told Yahoo Finance Live on Thursday.
"I think those areas of the market have more durability here as we look at an environment where earnings growth is slowing so valuations matter more," he added. "And many of these companies can look to generate earnings growth in this environment of rising interest rates and commodity prices, whereas tech is a bit more challenged as goods demand begins to slow."
4:02 p.m. ET: Nasdaq notches worst week since 2020
Here were the main moves in markets as of 4:02 p.m. ET:
S&P 500 (^GSPC): -85.00 (-1.90%) to 4,397.73
Dow (^DJI): -449.89 (-1.30%) to 34,265.50
Nasdaq (^IXIC): -385.10 (-2.72%) to 13,768.92
Crude (CL=F): -$0.84 (-0.98%) to $84.71 a barrel
Gold (GC=F): -$12.10 (-0.66%) to $1,830.50 per ounce
10-year Treasury (^TNX): -8.6 bps to yield 1.7470%
1:04 p.m. ET: 'I certainly think technology and growth is going to be a sector you want to be in'
As the Nasdaq sinks further into a correction and individual technology stocks come under considerable pressure, some analysts see the pick-up of tech earnings season next week as the start of a potential reprieve for at least some of these growth names.
"The re-thinking of valuations really just follows in the wake of rising interest rates. So we averaged 1.5% on the yield on the U.S. 10-year for all of last year, and this year we likely average somewhere between 1.75% and 2%," National Chief Market Strategist Art Hogan, told Yahoo Finance Live on Friday. "So that price and value calculation is obviously putting pressure on multiples across the technology complex."
"At some point in time we'll look at this and say we're probably overdone and we've taken too much multiple compression," he added. "And what likely will be the signal that that's the case will be when we get into earnings season in earnest next week ... and see where the winners and losers really sit."
"I certainly think technology and growth is going to be a sector you want to be in [for] 2022," Hogan said. "But I think you want to be in it in companies that measure themselves in price to earnings."
10:40 a.m. ET: Leading Economic Index posts solid jump in December: Conference Board
An index tracking future domestic economic conditions accelerated in December, pointing to still-solid growth trends in the U.S. even amid ongoing concerns over the pandemic, inflation, and a more hawkish tilt to monetary policy.
The Conference Board's closely watched Leading Economic Index (LEI) rose 0.8% in December, matching consensus estimates, according to Bloomberg data. This picked up from November's 0.7% clip, which was downwardly revised from the 1.1% gain previously reported.
“The U.S. LEI ended 2021 on a rising trajectory, suggesting the economy will continue to expand well into the spring,” Ataman Ozyildirim, senior director of economic research at The Conference Board, said in a press statement.
“For the first quarter, headwinds from the Omicron variant, labor shortages, and inflationary pressures—as well as the Federal Reserve’s expected interest rate hikes—may moderate economic growth," Ozyildirim added. "The Conference Board forecasts GDP growth for Q1 2022 to slow to a relatively healthy 2.2 percent (annualized). Still, for all of 2022, we forecast the US economy will expand by a robust 3.5 percent—well above the pre-pandemic trend growth.”
9:31 a.m. ET: Stocks open lower
Here's where markets were trading Friday morning:
S&P 500 (^GSPC): -12.92 (-0.29%) to 4,470.23
Dow (^DJI): -69.52 (-0.2%) to 34,645.87
Nasdaq (^IXIC): -57.82 (-0.41%) to 14,095.93
Crude (CL=F): -$0.60 (-0.7%) to $84.95 a barrel
Gold (GC=F): +$0.10 (+0.01%) to $1,842.70 per ounce
10-year Treasury (^TNX): -7.8 bps to yield 1.756%
9:27 a.m. ET: Bitcoin extends declines, falling to around $38,000
Cryptocurrency prices tracked the volatility across risk assets this week.
Bitcoin, the largest cryptocurrency by market capitalization, saw prices sink by 10% to below $38,000 at Friday's lows, according to Yahoo Finance data. That marked the lowest level since early August.
7:31 a.m. ET Friday: Stock futures hold lower, Netflix weighs on Nasdaq
Here's where markets were trading Friday morning:
S&P 500 futures (ES=F): -19.75 points (-0.44%), to 4,455.00
Dow futures (YM=F): -68 points (-0.2%), to 34,548.00
Nasdaq futures (NQ=F): -115.5 points (-0.78%) to 14,725.50
Crude (CL=F): -$1.38 (-1.61%) to $84.17 a barrel
Gold (GC=F): -$8.60 (-0.47%) to $1,834.00 per ounce
10-year Treasury (^TNX): -5.3 bps to yield 1.781%
6:01 p.m. ET Thursday: Stock futures open lower
Here's where markets were trading Thursday evening:
S&P 500 futures (ES=F): -17 points (-0.38%), to 4,457.75
Dow futures (YM=F):—41 points (-0.12%), to 34,575.00
Nasdaq futures (NQ=F): -128.25 points (-0.86%) to 14,712.75
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter